IMPACT OF COVID-19 ON BEAUTY & WELLNESS - July 2020 - Baird
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IMPACT OF COVID-19 ON BEAUTY & WELLNESS July 2020
TABLE OF CONTENTS
01 MACRO THEMES
02 INDUSTRY IMPACTS
03 CHANNEL AND CATEGORY SHIFTS
04 STRATEGIC REVIEW
05 IMPACT TO MANUFACTURING
06 SUB-SECTOR THEMES
07 TRENDS AND TAKEAWAYS
Page 1
MACRO THEMES
BEAUTY AMONG TOP 10 NEGATIVELY IMPACTED
COVID-19 HAS LED US INDUSTRIES
(ESTIMATED PROBABILITY 25-35% INDUSTRY LEVEL RETAIL SERIES 2019-2020, % GROWTH,
INTO UNCHARTED 2019 CONSTANT PRICES, FIXED YEAR EXCHANGE RATE)
TERRITORY Luxury Goods
(30) (20) (10) 0 10 20
Personal Accessories
Apparel and Footwear
MACRO THEMES Eyewear
Tobacco
The current pandemic has impacted virtually every facet Beauty and Personal Care
of the economy and consumers’ day-to-day lives. Consumer Electronics
Consumer Health
Consumer Appliances
Rising unemployment rates, reduced discretionary Home and Garden
spending, social distancing and lockdown restrictions have Alcoholic Drinks
altered consumer behavior. Soft Drinks
Retail Tissue and Hygiene
Significant discrepancies between winners and losers as Hot Drinks
those sub-sectors most exposed to physical retail and Toys and Games
Pet Care
without a digital presence have taken the biggest hit.
Home Care
Fresh Food
Successes defined by the strength of the digital Packaged Food
proposition, ability to fulfill orders during quarantine and
connection and direct relationship with the consumer.
Baseline COVID-19 Deep Recession Case
Positive Positive
Rapid acceleration in the ongoing shift to digital.
Negative Negative
Accelerated consciousness of health, wellness and
sustainability.
_____________________
Source: Euromonitor.
Page 2
IMPACT ON THE CONSUMER LANDSCAPE
BOTH RETAILERS AND CONSUMERS ARE REACTING TO THE CHANGING LANDSCAPE AT A PACE NEVER BEFORE EXPERIENCED
RETAIL CONSUMER
Businesses are being forced to adapt quickly and will need to Lockdown restrictions have led to social distancing, accelerated
make investments in e‐commerce technology, digital customer shifts to remote working and likely reductions in domestic and
acquisition, online ordering and delivery / logistics infrastructure, international business travel going forward.
in order to remain competitive.
Channel disruption has caused consumers to flock to the E-
Successful consumer businesses in today’s world must have a commerce channel as retail has been largely closed for an
sophisticated E-commerce infrastructure that can satisfy extended period of time – it will be interesting to see how much
meaningfully increased demand and associated fulfillment. of this short‐term demand affects the long-term pace of
e‐commerce vs. brick and mortar growth.
All of the ongoing changes are leading to a significant number of
distressed retailers / brands, rife with share gains and acquisition
opportunities. Reduced discretionary income and focus on saving money during
these uncertain times means consumers may trade down to
lower-priced, value-for-money products versus the prestige /
Consumer companies are now reforecasting expected levels of premium offerings.
revenue, profitability and cash flow for 2020, but the ability to do
so is understandably challenged.
Re-evaluation of values during COVID-19 like safety, hygiene,
wellness and importance of quality time with family likely to cause
Innovation expected with new business models likely to emerge as longer-term shifts in consumer spending priorities.
agile businesses (existing and new) respond to consumer needs.
Page 3
TRENDS AFFECTING THE CONSUMER INDUSTRY
SURVIVAL INSTINCTS COMPANY CHALLENGES CONSUMER SHIFTS
Recovery will coincide Darwinian Shakeout Discount Mindset
with a recessionary market, The crisis will shake out the weak, Decade-long build-up of bargain culture
compelling players to embolden the strong and accelerate the will be exacerbated by a rise in
ramp up resilience planning decline of struggling companies anti-consumerism, a glut in inventory and
and adapt models cash-strapped consumers trading down
Companies must adapt by evaluating
Surviving companies divestiture and acquisition opportunities To reach increasingly frugal and
will have made bold and rapid to strengthen their core and capture disillusioned consumers, brands must
interventions to stabilize whitespaces that emerge find inventive ways to regain value
their core business
100,000 56%
(32%) Expected retail store Consumers who said
special promotions were an
Decline in closures by 2025, a trend
accelerated by COVID-19 important factor when shopping
cosmetics retail revenue
during initial stages Digital Escalation
of COVID-19 crisis Innovation Imperative
To cope with new restrictions, mitigate Social distancing has highlighted
the importance of digital channels
the impact of the pandemic and adapt to and lockdowns have elevated digital
consumer shifts, companies must as an urgent priority
embrace new strategies to future-proof
Unless companies scale up and
Players must harness innovations and strengthen their digital capabilities,
quickly scale what works in order to make they will suffer in the longer term
radical and enduring changes
Value chain is disrupted >700%
leading to rapid scaling of YoY Increase in livestreaming
innovation from digital on Chinese e-comm website
design to social commerce Taobao since the outbreak
_____________________
Source: Skypad, Business of Fashion and McKinsey & Company.
Page 4
THE NEXT NORMAL
NEW DEMANDS, NEW VALUES, NEW PRIORITIES
CAUTIOUS SPENDING NEW VALUES HEALTH TOP OF MIND AGILE INNOVATION
5.1% 76% 54%
Forecast year-on-year real
6.9% of businesses said of businesses said
of global consumers said consumers will
decline in global average COVID-19 will cause
they are looking for ways to permanently change their
household disposable increased anxiety for
simplify their lives shopping and spending
income in 2020 their employees
behavior as a result of
COVID-19
• Economic recession with job • Consumers emerging from • COVID-19 has brought health • The speed of disruption
losses, falling incomes and isolation and lockdowns are awareness to an entirely new caused by COVID-19
uncertain earning prospects turning their backs on excess level as fear of infection highlights the importance of
makes consumers more consumerism, prioritizing makes consumers focus on being flexible and able to
cautious and more selective quality vs. quantity and hygiene, immunity and innovate to meet the
in their purchasing decisions buying less health risks to themselves demands brought about by
and others disruptions and rapidly
• Consumers likely to trade • Disruptions in the supply
changing consumer habits
down for certain products chain have highlighted the • Stress and anxiety on the rise
and reserve purchases of importance in localized due to the current • Consumers will expect the
luxury items for when the supply chains and thereby environment as consumers brands they support to put
economy is more stable encouraged people to buy look to take care of their people and their wellbeing
local with a focus on health more proactively with ahead of profits
sustainable a focus on self-care
_____________________
Source: Euromonitor Report, April 2020.
Page 5
SHIFTING PRIORITIES IN CONSUMER SPENDING
CONSUMERS ARE RE-EVALUATING THEIR LIFE PRIORITIES, GIVING RISE TO NEW VALUES AND SPENDING CRITERIA
ANTICIPATED CHANGES TO CONSUMER SHOPPING AND As consumer life has been transformed in significant ways
SPENDING BEHAVIOR (APRIL 2020) because of COVID-19 and the social distancing ordinances in
place, many of the recent trends in shopping behavior will
experience mid-term or even permanent change.
Buy more products to
improve life at home
– Nowhere is this more evident than in the permanent shift
to the online channel.
Reduce in-store shopping
The lines between the domestic sphere and professional sphere
have been blurred as many people are working from home.
Buy more health and
wellness related products
– This will lead to a decline in apparel and footwear sales
and certain categories of beauty products as well as an
increase in hometainment.
Reduce overall spending
Changes to the consumer mindset will lead to spending more
time at home, reduction in the purchase of non-essential items,
reduced air travel, a greater focus on family and self care, as
Increase online shopping well as on nature, mental wellbeing and preventative health.
0% 20% 40% 60% 80% 100% – Sanitation and immunity-boosting products within the
Respondents
Short-term change only (Q1 and Q2 2020) food, beverage and consumer health industries will
Mid-term change, but will eventually return to pre-crisis norms continue to see high demand along with a further
Permanent change convergence of beauty and health and wellness.
No change
_____________________
Not sure
Source: Euromonitor International COVID-19 Voice of the Industry Survey, April 2020.
Q: How do you think consumers will change their shopping and spending behavior as a result of the COVID-19 pandemic? N=2846.
Page 6
INDUSTRY IMPACTS
NEAR-TERM IMPACT ON BEAUTY & WELLNESS
LARGELY CONSIDERED RECESSION PROOF, THE $500B+ BEAUTY INDUSTRY FACES UNPRECEDENTED CHALLENGES
At the outset of the crisis, consumers focused on the essentials (in beauty and personal care and consumer products more broadly),
with dampened discretionary spending activity.
Sustained operations at retailers deemed essential (mass market retailers, drugstores, etc.) and a shift to online supported sales in
the category, but did not compensate for the loss of in-store sales that were 4X or greater beauty E-commerce sales pre-pandemic.
A shift to local brands, boost in masstige offerings and a newly redefined channel mix / retail landscape has happened – it remains
to be seen how these shifts will play out over the long run.
Beauty routines are evolving and focusing more on self-care to provide a sense of normalcy during these anxiety-ridden times.
Prestige beauty was down (14%) in Q1 2020, with color cosmetics faring the worst at a (22%) decline
IMPACT ON DEMAND BY CATEGORY
STRONG MEDIUM WEAK
Hand Sanitizers Facial / Skincare Color Cosmetics
Soaps / Handcare Nails Fragrances
Hair Color Shampoo / Styling Products Suncare
Hygiene Products Body Care Premium Brands
Page 7TRANSFORMATION IN THE WELLNESS MOVEMENT
WITH THE PERCEIVED FAILURE OF TRADITIONAL HEALTH SYSTEMS IN THE FACE OF THE PANDEMIC, MANY CONSUMERS
ARE NOW TAKING A PROACTIVE, LONG-TERM APPROACH TO THEIR OWN HEALTH & WELLNESS JOURNEYS
health + wellness: consumer mindset
MOVING AWAY FROM TOWARDS
illness vitality
TREATMENT PREVENTION
QUICK LONG
FIX TERM
reactive proactive
obligation experience
_____________________
Source: Mintel 2019.
Page 8ACCELERATION OF SELF-CARE
SELF-CARE IS ABOUT PRACTICING WELLNESS AND PROTECTING ONE OWN’S WELLBEING, ESPECIALLY DURING TIMES OF STRESS
The wellness market has grown exponentially in recent years driven by a re-prioritization of consumer values, including an increasing
focus on health in a holistic manner.
– The Global Wellness Institute estimates the wellness economy to be $4.5 trillion, encompassing Beauty & Personal Care,
Fitness, Nutrition, Preventative & Personalized Medicine, Spas & Personal Pampering and Wellness Tourism & Real Estate.
COVID has further accelerated the importance of wellness related activities – nearly 9 in 10 Americans now practice some form of
self-care, with more than 1/3 of consumers increasing their self-care in the past year.
Wellness has become a lifestyle rather than an occasional activity and encompasses many facets of consumers’ daily lives.
SELF-CARE ACTIVITIES (% OF RESPONDENTS)
90%
86%
82%
55%
47% 44%
30%
23% 21%
Healthcare Beauty & Food & Exercise Sleep Natural / Emotional / Wearable Health Devices
Personal Care Beverage Organic & Mental Wellness Devices
_____________________
Source: Beyond Design – Health & Wellness Industry Trends. Question: How do you practice self-care activities? Home Remedies
Page 9BEAUTY BRAND RESPONSES TO COVID-19
WITH THE ECONOMY SHUT DOWN, BRANDS MUST ACT NIMBLY TO CONSERVE CASH WHILE ALSO MAINTAINING AN
ACTIVE, MEANINGFUL DIALOGUE WITH CONSUMERS
INTERNAL INITIATIVES EXTERNAL FACING EFFORTS
After maintaining the health and safety of employees, financial Consumers are increasingly demanding more from the brands they
flexibility / reducing costs has been the next most critical priority as support – in these trying times, purpose and engagement are
revenue streams at most brands have dwindled. especially critical.
Reducing employee headcount with layoffs or furloughs. Charitable initiatives / corporate social responsibility.
Deferring salaries of senior executives. Repurposing of manufacturing capabilities for hand sanitizers,
masks and soaps.
Significantly culling marketing expenses.
Support of front-line essential workers.
Suspension of NPD and deferral of new product launches.
Refocus on in-demand and resilient categories.
Deferring rent across the retail base, if applicable.
Social / virtual consumer engagement.
Working with lending relationships to increase borrowing
capacity, reduce principal cash payments and get more Active dialogue with consumers on what they’re doing to
flexibility in covenants. support the crisis – consumers don’t want to be “sold to”
right now, but they do want content from and engagement
Working with vendors on flexible payment terms. with the brands they support.
Adjusting inventory flow to meet liquidity needs. Elevated risk of being perceived as “tone-deaf” if marketing
efforts / messaging aren’t carefully curated.
Brands that are better able to remain flexible will emerge from the pandemic with stronger
competitive positioning and increased market share as a shake out happens across the industry
Page 10FORECASTED DECLINES IN BEAUTY & WELLNESS
THE BEAUTY INDUSTRY IS EXPECTED TO EXPERIENCE THE STEEPEST DECLINE IN THE LAST 60+ YEARS
INTENT TO SPEND ON BEAUTY PRODUCTS ONCE THE
PANDEMIC ENDS
30% intend to spend more
70% intend to spend the same or less
KLINE PREDICTS COVID-19 WILL CAUSE THE STEEPEST
DECLINE EVER IN THE COSMETICS & TOILETRIES
INDUSTRY SINCE THEY BEGAN TRACKING 60 YEARS AGO
Beauty habits change when the consumer is at home – 90% of women
(2.5%) Estimated decline in 2020
indicated they’re wearing little or no makeup while working from home
as they are generally taking a more relaxed approach to their beauty
routines, choosing to focus more on self-care vs. makeup glam.
(8.0%) Worst case scenario
Working from home could be the “next normal” for many, which will
see some of the challenges / pressures continue to impact the sector.
1.5% Best case scenario
Regardless of the channels and categories served, every brand has felt
a profound impact from COVID-19 – those that are able to adapt
quickly in these trying times are poised to rebound and be stronger on During the Great Recession, the industry declined
the other side of the pandemic. (0.8%)
_____________________
Source: Wall Street Estimates, Kline Industry Report.
Page 11IMPACT OF A COVID-19 RECURRENCE
U.S. BEAUTY INDUSTRY REVENUE COULD FALL BY AS MUCH AS 35%
MONTHLY BEAUTY-PRODUCT SALES COMPARED WITH 2019
(%)
10%
0%
(10%)
(20%)
(30%)
(40%)
(50%)
(60%)
Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Jan-21 Feb-21 Mar-21
(25%) to (35%) ~50% 8 – 20 weeks Q1 2022
change year over year drop in peak sales year over year Of store closures before return to pre-crisis level
(with rolling openings)
_____________________
Estimate based on McKinsey economic-impact scenario A1 (virus recurrence).
Source: Daxue Consulting; Earnest Research; National Electronic Disease Surveillance System Base System; *Safeguarding our lives and our livelihoods:
The imperative of our time, *Mar 2020, McKinsey.com; McKinsey COVID-19 US Consumer Pulse Survey, Mar 16-17 20209; McKinsey analysis.
Page 12LEARNINGS FROM THE GREAT RECESSION
BEAUTY SUFFERED A SLIGHT SLOWDOWN IN 2008, WITH PREMIUM COSMETICS BEARING THE BRUNT OF THE DOWNTURN
Beauty is a recession-resilient category, suffering a modest decline in the 2008 crisis. RESILIENT SECTORS DURING THE
GREAT RECESSION
Consumers sacrificed luxury brands and focused more on mass or masstige alternatives
leading to declines in premium beauty, which took until 2011 to recover to pre- Skincare (anti-aging)
recession levels.
A similar decline in premium brands is likely to happen in the current pandemic along Men’s grooming products (undeveloped
with other discretionary categories. sector with untapped opportunities)
Frugal shopping will return (either through trading down or waiting for sales &
promotions) – both because of lower discretionary income and because consumers are Suncare (increased education and rising
re-evaluating what’s important to them in the current environment. awareness of anti-aging benefits)
Makeup and fragrances likely to suffer worse today due to limited social interactions,
but skincare better positioned due to alignment with health and overall wellness. Babycare (parents unwilling to give up on
the quality of their children’s products)
GLOBAL COSMETICS & TOILETRIES PERFORMANCE (2003 – 2008)
Deodorants (as replacements for
400,000 7%
fragrances)
6%
300,000
% Value Growth
5%
US$ million
4% Bath & shower
200,000
3%
100,000 2% Multi-functional products
1%
0 0%
2003 2004 2005 2006 2007 2008
Total CT Premium CT % CT Growth % Premium Growth
_____________________
Source: Euromonitor.
Page 13CHANNEL AND CATEGORY SHIFTS
COVID-19 IMPACT BY CHANNEL
THE PANDEMIC HAS ACCELERATED THE GROWTH OF BEAUTY IN THE ONLINE CHANNEL
KEY COMMENTARY General decline in the
number of shopping trips
consumers are willing to
With the shutdowns of non-
essential retailers, consumers
may grow more comfortable
The Professional channel has Further decline in make and an increased desire shopping at multi-category
been hit the hardest, with department stores continues; for all-in-one shopping trips retailers like drug and food
government mandated beauty, once a bright spot in have negatively impacted stores, who have ramped up
shutdowns forcing salons and this channel, may not be specialty retailers and may their focus in recent years on
spas to close their doors. enough to sustain traffic. have a lasting impact. the beauty category.
NEGATIVE IMPACT POSITIVE IMPACT
Direct sales
Food stores •E-commerce
•TV shopping
Drug stores
•Social setting
Mass
merchants
Specialty
stores
Department
stores
Professional
outlets
•Salons
•Spas
Closed during shutdown Open during Essential outlets. Open during Never closed!
•Physician
Return expected to be gradual / shutdown but shutdown and with elevated sales. Already fast-tracked
offices
restricted. with limitations. growth; now at
_____________________ Some permanent closures expected. record levels.
Source: Kline.
Page 14IMPACT TO THE PROFESSIONAL CHANNEL
GOVERNMENT-MANDATED SHUTDOWNS HAVE HIT THE BEAUTY SERVICES INDUSTRY HARD
CATEGORY IMPACT SALON SERVICE REVENUES NUMBER OF SALONS POST CRISIS
$64B (3%)
(8%)
Pre-pandemic estimated 2020
U.S. category size
$5.5B (33%) (20%)
Estimated lost service revenue every Great Recession Covid-19 Great Recession Covid-19
month salons remain closed
FREQUENCY OF VISITS DIY HAIRCARE CHANNEL SHIFT ONLINE
Service Interval Retail Sales of DIY Hair Colorants E-Comm Sales Mix
10 to 16 Weeks 3% 10%
8 to 10…
5%
(2%)
Industry Average Post Covid-19 Great Recession Covid-19 Pre Covid-19 Post Covid-19
_____________________
Source: IbisWorld, Kline.
Page 15CHANGING RETAIL LANDSCAPE
WHAT DOES A HIGH TOUCH, EXPERIENTIAL CATEGORY LOOK LIKE AFTER COVID-19?
A Letter from CEO Mary Dillon:
We Look Forward to Welcoming You Back to
COVID-19 HAS DRAMATICALLY CHANGED THE FUTURE
Ulta Beauty with Safety at Heart OF BEAUTY RETAILING
Face Coverings Testers are Unavailable
Associates are required to wear Please don’t touch or use them Prompted by the virus, retailers are being forced to address
them, and we ask you to as well. as they are for display only. their sanitation protocols and change the way they allow
consumers to sample products in their stores.
Increased Cleaning Hand Sanitizer Trying and testing out products, such a hallmark of the beauty
We frequently clean and Available throughout the store
disinfect throughout the day. for your use. experience and a major factor in the consumer purchasing
decision, will need to evolve as concerns over sanitization and
hygiene will remain in a post-COVID world.
Social Distancing Salon Services
Practice appropriate distancing Where available, hair services
of at least six feet. To support are by appointment only with
this, we will have limited increased safety measures. Testers act as a way to get consumers in the store and
occupancy throughout stores. educate them on different products, and as such, retailers are
Ulta began re-opening stores in May, exploring new ways of sampling that are safe.
Associate Wellness
Associates will participate in with strict guidelines in place to protect
daily wellness screens before
their shifts.
the health and safety of both – Individually wrapped samples come with their own set
employees and customers of drawbacks, such as the extra packaging required and
waste produced – and if it’s been touched by too many
Sephora also recently began
people, you have the same issues as before.
re-opening stores, but no
testers are being allowed – Product reviews have become all the more important.
how will beauty retailers
recreate the experiential /
testing element that was so Virtual try-ons and consultations have also become a fixture
crucial for drawing consumers of beauty retail during the pandemic, but the element of
into stores and convincing human connection can be challenging to replicate.
them to purchase products?
Page 16BEAUTY IS EXPERIENCING A RAPID SHIFT ONLINE
CONSUMERS WILL INCREASE THEIR CONSUMPTION THROUGH THE ONLINE CHANNEL, BUT IT WILL NOT OFFSET THE
DRAMATIC DECLINES EXPERIENCED FROM THE CLOSURE OF RETAIL LOCATIONS
The importance of digital has increased significantly in a sector where the physical store has remained important for trial and experience.
Pre-COVID, 70%+ of beauty purchases involved a visit to an offline location, with E-commerce only accounting for 11% of 2019 total sales.
Some brands and retailers with inventory and shipment operations ready to scale have reported 2X E-commerce sales compared to pre-
COVID-19 levels, but that will likely moderate once non-essential retailers are back in business.
Temporary closures of 47,000 chain stores, including beauty specialists and department stores such as Sephora, Ulta, Nordstrom and
Macy’s will mean a dramatic shift in how consumers shop for beauty beyond the crisis.
Surge in online demand has created challenges and pressures for E-commerce infrastructures trying to function efficiently, considering
safety of manpower, vendor management and delivery delays.
ESTIMATED % OF ONLINE SHARE GAIN THAT CONSUMERS SAY WILL PERSIST / REMAIN IN A POST-CONTAINMENT WORLD
Groceries At-Home Vitamins, Minerals Consumer Household
(Delivery & Pickup) Beauty Fitness Pet & Supplements Electronics Durables Fashion
~35 – 40% ~30 – 35% ~35 – 40% ~20 – 25% ~20 – 25% ~20 – 25% ~5 – 10% 0%
E-commerce is the place consumers have to be now, but as social distancing directives ease,
will consumers return to their old shopping habits?
_____________________
Source: L.E.K.
Page 17RISE OF AMAZON AS A FORMIDABLE BEAUTY PLAYER
AMAZON HAS BEEN THE UNDISPUTED WINNER FROM THE COVID-19 CRISIS
Beauty’s adoption of Amazon as a major selling channel was never Total sales on Amazon were
a question of if, but when. $280 billion in 2019
– Change in consumer behavior is being accelerated by the
pandemic and will have long-term impacts on what, where 80% 63%
and how people buy products and services.
check Amazon for pricing and of shoppers start their online
Selling a prestige, luxury beauty brand on Amazon used to be seen reviews before purchasing searches for products on
as a detriment to all other channels, but increasingly, a brand Amazon (more people search for
needs a presence on Amazon in order to be relevant. products on Amazon vs. Google)
While Amazon is still less of a place for product discovery and more
of a means to fulfill demand, that will likely change in the future as
companies create curated brand experiences through Amazon. Amazon is estimated to own
As a brand on Amazon, it is critical to both maintain your brand 49%
integrity by representing it as you would at any other consumer of the U.S. E-commerce market share in 2020
touchpoint and not upset other retail partners.
– Achieving the latter requires price discipline and an ability to
hold to MAP as well as controlling unauthorized resellers of
the product.
Brands that are poised to succeed on Amazon need A+
content and a dedicated selling strategy including
significant investments in content, videos / pictures,
product details and descriptions, reviews, ratings.
Page 18BEAUTY IS GOING
VIRTUAL
In a world where people have been stuck at home, beauty
professionals
RESHAPING and
THE brands
WAY are getting
BRANDS ENGAGE creative
WITHinCONSUMERS
how they
reach consumers on the social platforms they are using to
stay entertained – consumption of digital content has
reached an all-time high.
Brands have ramped up their content and education
strategy on social media, while at the same time,
rethinking their influencer strategies as marketing budgets
have been revisited.
Salons have started preparing and shipping color touch-up
kits to customers and offering virtual tutorials to help
customers maintain their hair color during the pandemic.
Beyond more traditional social media platforms,
livestreaming on platforms such as Facebook Live,
Instagram and TikTok, will be vital for engaging with the
younger consumer base.
Of the world’s top global beauty brands, 15% now operate
an official TikTok account, up from just 5% in October
2019 – a trend that is expected to continue after the
pandemic subsides.
Page 19RISE OF DO-IT-YOURSELF BEAUTY
THE AT-HOME BEAUTY MARKET IS PARTICULARLY BENEFITTING IN THE CURRENT ENVIRONMENT
While salons & spas are closed, consumers are forced to look for
alternatives for their beauty treatments.
+23% Sales of hair dye
Even as salons have started to re-open, lingering concerns over
safety will cause a subset of consumers to forego their regular
services in favor of treatments that can be completed at home. +166% Sales of hair clippers
A desire to save money is also a contributing factor in choosing to In the first week of April 2020 versus last year
perform a beauty treatment yourself versus visiting a salon.
Influencers and “show me how” content are especially popular as +800% +10-12X
consumers learn how to self-master the services they previously
went to a professional for. Sales increase week-over-week in April Increase in sales
Many brands are trying to adapt by offering online product
tutorials, virtual consultations and how-to guides for using their
products effectively at home.
Mixture of education and entertaining content is critical in
engaging with consumer base.
Page 20STRATEGIC REVIEW
COVID-19 IS CHANGING
THE WORLD OF BEAUTY
AND STRATEGIC PLAYERS ARE BEING
FORCED TO ADAPT
The global beauty industry has been shocked by the
COVID-19 crisis. 1H 2020 sales have been weak, supply
chain bottlenecks have reduced product availability and
consumers have had limited access to retail outlets.
Major strategics have had to pivot quickly to respond to a
set of challenges that seem to change daily. Many
withdrew their 2020 guidance amid retail closures and
reduced demand. Some strategics that could produce
hygienic goods immediately increased production of hand
sanitizer and related products.
Strategics have also had to update their day-to-day
operations. Beyond remote working for office jobs, many
firms have greatly raised hygiene standards in their
factories, requiring PPE and worker temperature checks.
Amorepacific and Estee Lauder have invested heavily in
their E-commerce abilities. L'Oréal, which already had a
fulsome digital presence, has been rewarded by the “BRANDS NEED TO STOP WAITING FOR 'THIS
market, with their stock price growing YTD. TO BE OVER' — THERE IS NO GOING
BACKWARDS. OUR WORLD HAS PERMANENTLY
There are signs that the beauty industry may have a CHANGED…IF YOU'RE WAITING FOR THINGS
V-shaped recovery. In China, the industry’s February sales TO BE 'NORMAL' AGAIN, YOU'LL BE WAITING
fell up to 80 percent compared with 2019. In March, the FOR A VERY LONG TIME.”
year-on-year decline was 20 percent—a rapid rebound
under the circumstances.
- CHARLENE VALLEDOR,
PRESIDENT SOS BEAUTY
_____________________
Source: McKinsey. Page 21COVID-19 IMPACT ON BEAUTY STRATEGICS
YTD % Off 52 Wk High YTD % Off 52 Wk High
S&P 500 (4.9%) (8.7%) Kao (4.5%) (7.7%)
Amorepacific (19.3%) (30.4%) L'Oréal 8.1% (0.7%)
50.0% Beiersdorf (4.3%) (13.8%) Revlon (53.4%) (63.9%)
Coty (59.5%) (66.7%) Sally Beauty (30.5%) (43.0%)
e.l.f. 21.5% (4.7%) Shiseido (11.4%) (25.5%)
25.0% Estee Lauder (8.5%) (14.4%) Ulta (20.1%) (44.8%)
0.0%
(25.0%)
(50.0%)
1 2 3 4 5 6 7 8 9 10 11 12
(75.0%)
2-Jan 23-Jan 13-Feb 5-Mar 26-Mar 16-Apr 7-May 28-May 18-Jun
S&P 500 Beiersdorf Amorepacific Coty e.l.f. Estee Lauder
Kao L'Oreal Revlon Sally Beauty Shiseido Ulta
1. Disease Anomaly 2. Outbreak Declared 4. First Case Outside
3. First International Case 5. Rise in Italian Cases 6. Italy Shuts Down
Detected in China of Asia
January 4th, 2020 – The January 5th, 2020 – WHO January 13th, 2020 – February 15th, 2020 - February 23rd, 2020 – Italy March 4th – March 9th,
World Health reports first “Disease Officials confirm a case of France reports the first becomes the nation with 2020 – Italy places a
Organization reports on Outbreak News” COVID-19 in Thailand, the death from COVID-19 the largest outbreak “Shelter in Place” order
heighted pneumonia notification and publishes first recorded case outside of Asia outside of Asia shutting down all non-
cases in Wuhan, China risk assessment outside of China essential services
9. Federal Reserve
7. Europe Travel Ban 8. US “Shelter in Place” 10. China Ends Lockdown 11. Europe Stabilizes 12. U.S. Begins Reopening
Takes Action
March 11th, 2020 – March 16th – March 21st, March 31st, 2020 -The Fed April 8th, 2020 – China April 22nd, 2020 - May 1st, 2020 – As case
President Trump bans all 2020 – U.S. begins launches range of announces that it will lift Outbreaks in Western counts approach stable,
travel between the shutdown and measures to increase the lockdown on Wuhan Europe “appear to be non-exponential growth,
United States and Europe implements “shelter-in- financial market liquidity amidst declining infection stable or declining,” says many states announce
place” orders rates WHO plans to gradually reopen
_____________________
Source: CapitalIQ; Market data as of June 30th, 2020. Page 22IMPACT ON SELECT BEAUTY STRATEGICS
“E-commerce was already very top of mind for us. This just sped that up.” – Jessica Hanson, Amorepacific U.S.
President
Impact and Response
• Sharp declines in both sales and profit
o Sales in Asia fell by 31% and sales in Europe fell by 7%
o Domestic online sales were up by 80%
• Store Closures
o ~60% of all stores in China were closed in February, closures down to single digits by April
o In the rest of the ASEAN region, >80% of stores were closed by the end of March
• Began requiring all production staff to wear PPE while onsite, and had supply chain hygiene practices
certified by the Korean Ministry of Food and Drug Safety
+7.5% (19.3%) • Announced focus on people-free salon-style consultation, with planned launch of smartphone app that
measures users’ faces and then prints a custom hydrogel match based on face shape and skin needs
2019 Stock Stock YTD o Amorepacific believes that customized beauty goods will be a bridgehead for 2020 earnings improvement
Performance
“The global COVID-19 crisis is changing our life and work radically. Beiersdorf’s foundations are strong enough
to enable us to master and overcome this unprecedented crisis together – and emerge from it stronger in the
long term. Despite today’s major economic challenges, we will stay on course with our strategy and will
maintain investing in our initiatives.” – Stefan De Loecker, CEO
Impact and Response
• Beiersdorf withdrew 2020 sales guidance, noting that strong headwinds were expected for all of 2020
• As of Q1 2020, sales were down 1.9% across the firm and consumer sales were down by 1.0%
o Comp sales were down by 3.9% total and 3.3% in consumer
o European sales declined by 6.6%, with a 9.0% decline in Western Europe
o Sales were down by 6.4% across Africa, Asia and Australia
o Americas sales were up 7.9%, driven by strong Latin American performance
+15.7% (4.3%)
• Although essential personal care items had seen a sales surge, and online sales were up, travel retail had
2019 Stock Stock YTD
been impacted by “the collapse of international travel” and sales were down by 35.8%
Performance
_____________________
Sources: CapitalIQ, Company Filings, Baird Research.
Stock YTD Performance as of June 30th, 2020. Page 23IMPACT ON SELECT BEAUTY STRATEGICS (CONT.)
“I don't think that COVID makes a difference to our plan. We had the plan to focus on our power SKUs and to
give them a disproportionate share of shelf and align, I would call it, our power SKUs with - across the line from
a distribution, promotion and advertising standpoint.” – Pierre Laubies, CEO
Impact and Response
• Cut executive salaries by 25% and switched production lines to produce several thousand bottles of hand
sanitizer gel per week, all of which are being distributed free of charge to medical professionals and Coty
employees working in plants and distribution centers
• Expects net revenues for Q3 FY20 to decline roughly 20%, with a meaningful impact on profit
• Sale process for its Professional, Retail Hair and Brazilian operations to KKR has moved forward
• Sold $1 billion in convertible preferred shares to KKR in what is deemed a “strategic transformation”
• Coty’s largest shareholder, JAB, has notified the Company that it has decided to fully repay the loan it
+54.3% (59.5%)
used to finance the tender offer in 2019
2019 Stock Stock YTD
Performance
“We are seeing a change in consumer behavior due to the COVID-19 pandemic and anticipate that our
sales…will be significantly depressed during this time.” – Tarang Amin, CEO
Impact and Response
• The Company suspended net sales guidance for FY21 (beginning April 1st, 2020), as it has seen a
significant decline in retail sales, although there were minimal supply chain disruptions
• The Company is focused on e.l.f.’s relative performance to the category (better than the category so far)
and the opportunity to build market share
• The Company is seeking to reduce working capital, better match marketing expense to demand, and
explore other areas to reduce operational costs
• Longer-term, the Company remains confident in its core value proposition of delivering prestige quality
cosmetics and skin care at extraordinary prices
+68.3% +21.5%
• Acquired clean beauty brand W3ll People in February 2020 in a $27 million cash deal
2019 Stock Stock YTD
Performance
_____________________
Sources: CapitalIQ, Company Filings, Baird Research.
Stock YTD Performance as of June 30th, 2020. Page 24IMPACT ON SELECT BEAUTY STRATEGICS (CONT.)
“In light of ongoing temporary store closures in many regions, we have begun to adjust our cost structure and
have enhanced our liquidity during this challenging time. We remain focused on our proven strategy built on
multiple engines of growth and the desirability of our brands and their hero franchises. Our diverse portfolio of
categories, channels and geographies affords us the needed agility to navigate through this environment and
emerge strongly.” – Fabrizio Freda, President and CEO
Impact and Response
• There has been a rapid acceleration in online sales across product categories and geographies
• Implemented strict cost controls to help mitigate expected lost sales, including reduced advertising and
promotion activities, travel, meetings, consulting and certain employee costs
• The Company has planned reductions in capital expenditures in facilities and consumer-facing counters
• Net Sales declined 11% for the 3rd quarter ended March 31, 2020 driven primarily by retail store closures
+58.9% (8.5%)
2019 Stock Stock YTD
Performance
“We are seeing a change in consumer behavior due to the COVID-19 pandemic and anticipate that our sales
and Nielsen-tracked channel results, while better than the category, will be significantly depressed during this
time.” – April 27th Press Release
Impact and Response
• For 2020, Kao is projecting significant shortfall versus plan
• Kao responded by quickly switching production to focus on hygiene products
• On March 31st, Kao announced that although there was a drop for their Cosmetics business, increasing
demand for hygiene goods resulted in an increase in net sales and operating income for Q1
• Early sales for seasonal products have been below plan
• Investors were advised to expect significant negative impact in Cosmetics due to declining store sales and
the inability to upsell consumers through in-person store consultants
+14.1% (4.5%)
• Investors have been eagerly following Kao’s partnership with Kitasato University and their efforts to
2019 Stock Stock YTD
develop a COVID-19 vaccine
Performance
_____________________
Sources: CapitalIQ, Company Filings, Baird Research.
Stock YTD Performance as of June 30th, 2020. Page 25IMPACT ON SELECT BEAUTY STRATEGICS (CONT.)
“Our strength rests on our balanced business model, with our presence in all distribution channels and all
categories” – Jean-Paul Agon, Chairman and CEO
Impact and Response
• Digital capabilities are proving a strength as E-commerce is growing at +52.6% and now represents close
to 20% of sales
• Luxe and Professional Products Divisions are the most impacted due to the closure of perfumeries,
department stores and hair salons around the world
• Consumer Products Division has seen a more moderate decline because of activity in mass-market retail
• Active Cosmetics Division is still posting double-digit growth due to a portfolio of brands adapted to
strong demand for health-related products as pharmacies remain open
• L'Oréal remains an active acquiror having just announced the acquisition of Thayers Natural Remedies for
+31.6% +8.1%
approximately $400 million
2019 Stock Stock YTD
Performance
"Although our business was significantly impacted during the first quarter of 2020 by the ongoing global
COVID-19 pandemic, we have taken aggressive steps to mitigate these effects and feel confident that we will
emerge well positioned to continue our transformation and maintain our leadership position within the beauty
category” – Debbie Perelman, President and CEO
Impact and Response
• Announced Business Optimization and Restructuring to improve profitability and cash flow – expected to
generate $200-$230 million in annualized cost reductions by the end of 2022
• Finalized debt refinancing in May 2020 to improve capital structure
• E-commerce business grew approximately 47% and represented over 12% of sales in Q1, almost doubling
the scale since Q1 2019
• Overall Net Sales declined 18% in Q1 due to negative impacts associated with COVID-19
(18.6%) (53.4%)
2019 Stock Stock YTD
Performance
_____________________
Sources: CapitalIQ, Company Filings, Baird Research.
Stock YTD Performance as of June 30th, 2020. Page 26IMPACT ON SELECT BEAUTY STRATEGICS (CONT.)
“When it comes right down to it, our customers want to feel good about themselves, and they're willing to
sacrifice other things before they sacrifice their investment in themselves and how they look. COVID-19 is not
your typical financial disruption. In some respects, it has created a growth opportunity for both our retail and
our wholesale businesses.” – Chris Brickman, President and CEO
Impact and Response
• The Company withdrew 2020 earnings guidance and took the following immediate steps: abated near
term rents, furloughed 60% of its corporate staff, reduced executive compensation, reduced marketing
and worked with vendors to lower inventory and increase terms
• The Company increased their borrowing capacity from $500M to $620M
• As of March 31st, same store sales dropped 7.1% for the entire quarter
• Shipped E-commerce sales for Sally US & Canada retail were up 118% in March, and 872% in April
+5.5% (30.5%)
2019 Stock Stock YTD
Performance
“Going forward, business results are still subject to uncertainties, such as the viral spread and the timing of
resumption of economic activities due to regulatory measures taken by each country. It is currently very
difficult to assess trends and the impact of these uncertainties.” – May 12th, 2020 Earnings Call
Impact and Response
• Although Shiseido had previously been working on its “VISION 2020” plan to reach new sales highs by
2020, it has withdrawn earlier projections and will announce new estimates later this year
• Sales of their four main brands (SHISEIDO, Clé de Peau Beauté, NARS and ELIXIR) at leading stores during
the 2020 Chinese New Year period were down 55% from the previous year
• Shiseido reaffirmed their commitment to growing in China, announcing a new Chinese innovation center
• Announced that they were seeing recovery in Chinese markets as early as March 25th
• Shiseido has been less optimistic about Europe and North America, expecting long-term disruptions to
+19.4% (11.4%)
sales as well as potential supply chain issues
2019 Stock Stock YTD
Performance
_____________________
Sources: CapitalIQ, Company Filings, Baird Research.
Stock YTD Performance as of June 30th, 2020. Page 27IMPACT ON SELECT BEAUTY STRATEGICS (CONT.)
“Although we do not expect to fully offset the revenue impact of our store closings, the multi-year, strategic
investments we have made to enhance our omnichannel and supply chain capabilities… have enabled us to
support increased E-commerce demand and guest engagement.” – Mary Dillon, CEO
Impact and Response
• Q1 financial results (announced on May 28th) saw sales decline by 33% year-on-year
• Leveraging digital and E-commerce platforms to drive sales during the temporary closure of all locations
• Actively reducing expense plans, moderating the pace of investments in international capabilities,
aligning inventory with sales trends and reducing capital expenditure plans related to new store openings
• Self-care, wellness and skincare products have seen the greatest sales increases as consumers seek stress
relief, well-being and general good health
• Began re-opening stores in May in addition to providing Curbside Pickup in many locations
(1.4%) (20.1%)
• In June 2020, announced a partnership with clean beauty retailer Credo Beauty to have an endcap in 100
2019 Stock Stock YTD
Ulta doors in Fall 2020 in addition to an online presence
Performance
_____________________
Sources: CapitalIQ, Company Filings, Baird Research.
Stock YTD Performance as of June 30th, 2020. Page 28M&A ENVIRONMENT
A NEW NORMAL OF COMPANIES PURSUING MORE
CONSERVATIVE, PROFITABLE GROWTH WITH
DISLOCATION LEADING TO M&A OPPORTUNITIES
RECENT M&A TRANSACTIONS
($ in millions)
Valuations likely to moderate after a period of increasing Target Acquiror Date EV EV / Rev
multiples paid for top assets in the beauty space.
(20% Stake)
Jun-20 $1,000 -
Strategics and financial sponsors alike will be more (Minority Stake)
Jun-20 - -
concerned with profitability and less enamored with high-
growth, unprofitable brands. Jun -20 - -
Jun-20 - -
Strategic acquirors will face increasing pressure to use
M&A to support growth objectives as global GDP slows on Jun -20 $400 ~9x
the heels of the crisis.
Jun-20 - -
It will be a challenge for big and small players to identify / Jun-20 ~1,200 ~5
the lasting trends coming out of the pandemic, but a
shake-up in the market creates unique pockets of
opportunity for investment. Feb-20 27 3.9
Jan-20 255 3.9
While activity has slowed tremendously over the past
several months, the recent majority stake acquisition of Jan-20 1,200 6.8
Charlotte Tilbury by Puig and BDT Capital Partners signals
to the market the continued trust among investors and
the resiliency of the beauty category.
Page 29IMPACT TO MANUFACTURING
NEW PRIORITIES FOR
PRODUCTS AND
PACKAGING
SUSTAINABLE TAKES A BACKSEAT
TO SHELF STABLE AND GERM-FREE
Pre-COVID, there was an ongoing shift led by consumer
demand, especially Millennials and Gen-Z, for more
sustainable product offerings and reduced waste in
beauty packaging.
Consumers’ views are likely to change (at least in the
near-term) for more hygiene-driven features, in which
consumers may view disposable or one-time use
packaging (as wasteful as it is) as positive.
While jars and pots may have been on the decline, we
expect to see surges in products that allow for hands-free
solutions like pads, misters and multi-purpose sticks as
consumers begin to look for brush-free or touch-free
application systems. THE PANDEMIC IS
Brand owners will need to ensure their contract MAKING CONSUMERS
manufacturing partners have procedures in place for
personnel, including personal hygiene, and for facilities,
HYPER-AWARE OF THE
including facility cleaning and upkeep. NEED FOR HYGIENIC
PACKAGING
_____________________
Sources: Nielsen, GlobalData. Page 30CONTRACT MANUFACTURERS FELT AN IMMEDIATE
AND POWERFUL SHOCK
COVID-19 HAS IMPACTED REVENUE AND VIABILITY
of contract manufacturers expect to
96% see some sort of negative impact from
COVID-19
of major retail orders were cancelled
75% by March 31st, and the other 25% were
delayed
More than half of contract
(30%) manufacturers registered a revenue
decline of 30% or greater
Prior to COVID-19, contract manufacturing was one of the most Only 14% of contract manufacturers
notable bright spots in the healthy and growing beauty and personal
care industry.
14% believe they can survive a slowdown
lasting six more months
Expected product launches were postponed, changing consumer of contract manufacturers would not
habits reduced sales of former superstar products and production
slowdowns caused overhead to eat into profitability. 30% expect to survive the next 90 days if a
slowdown continues
The rapid transition caused by COVID-19 happened in a matter of
weeks and experts expect the recovery will take some time – some Up to 40% of contract manufacturers
believe the challenges could stretch into mid-2021. 40% are expected to close within the next
12 months, according to ICMAD
_____________________
Sources: Beauty Independent, ICMAD. Page 31TEMPORARY SLOWDOWN, LONG-TERM OPPORTUNITY
MANY BRANDS WILL BE EAGER TO SHIFT RISK TO CONTRACT MANUFACTURERS AFTER COVID-19 PASSES
PRESENT IMPACT
• Product development delays compounded by the inability to
perform product testing due to lack of access to panelists
• Material shortages (surge in need for hand sanitizer has
reduced supply for necessary emulsifiers)
• Restriction of shipments by major carriers and parcel services of
BPC products not classified as medical or critical personal care
• Liquidity issues may lead to shutdowns for manufacturers with
limited capital following growth-focused industrial cycle
• Anxiety around increased number of COVID-19 cases and
potential for second wave later this year
FUTURE EFFECT
• Surviving manufacturers will be able to more quickly return to
operating at scale than firms with more complex organizations
• Contract manufacturing will become an increasingly popular
alternative to in-house production, as it will allow brands to
outsource risk, hygiene controls and supply chain maintenance
• Reduced reliance on raw materials from China will require
heightened expertise in sourcing from a global marketplace
• Potential for regional, localized COVID-19 outbreaks increases
incentive for geographically diverse and agile manufacturing
base, able to quickly cover for temporary plant shutdowns
_____________________
Sources: PMMI, Beauty Independent, Baird Research. Page 32SUPPLY CHAIN DIVERSIFICATION
MANUFACTURERS AROUND THE GLOBE ARE RE-EVALUATING THEIR SUPPLY AND LOGISTICS STRATEGIES BY DIVERSIFYING
SUPPLY CHAINS AND HAVING ALTERNATE SUPPLIERS ON HAND
% OF MANUFACTURERS REPORTING SUPPLY CHAIN
INTERRUPTIONS AND DIFFICULTIES
Before COVID-19, manufacturing supply chains were extremely
effective, but concentrated.
Component Shortages
When the supply chain disruption started in China, numerous Packaging Shortages
factories across industries were shut down and restrictions on Ingredient Delays
transportation were imposed.
Demand Reduction
The pandemic exposed the weakness of being too WFH Interruptions
concentrated with any one geography, country, region or
supplier, not to mention the ongoing and increasing tariffs Production Line Closures
being levied on Chinese goods.
Reduced Cargo Capacity
The American Chamber of Commerce in South China found Finished Good Delays
that 64% of U.S. companies were considering moving
production elsewhere. Employee Anxiety
Source Selection Delays
Japan unveiled a $2.2 billion fund to tempt Japanese
manufacturers back to the country or even to Southeast Asia – Increased Shipment Cost
as long as they leave China – in response to supply chain
Items Stuck in Customs
disruptions stemming from the pandemic.
International Distribution
Going forward, we expect there will be increased focus on Paper Goods Shortages
having diversified and domestic manufacturing capabilities,
especially in the U.S.
0% 5% 10% 15% 20% 25% 30%
_____________________
Sources: South China Morning Post, Forbes, ICMAD. Page 33SUB-SECTOR THEMES
SKINCARE
CONSUMER INTEREST IN SKINCARE IS EXPECTED TO KEEP GROWING
2019 was the year of the skincare blockbuster deal – Drunk TRENDS FOR 2020 AND BEYOND
Elephant, Elemis, Filorga, Tatcha all sold for truly premium
multiples.
Clinical-grade advanced formulations, especially
Skincare will continue its reign in 2020 as consumers prioritize a to aggressively target signs of aging
longer-term proactive approach to beauty and due to continued
tailwinds from skincare being linked closely with self-care.
Focus on clean, smooth and “poreless” skin
Across skincare products and CPG as a whole, consumers are more
ingredient-savvy as they look to fully understand what they are
applying to their skin. Several brands are fulfilling this desire for Increasing utilization of CBD as an ingredient
education and concrete evidence, especially as terms like “natural”
and “clean” have become diluted.
Multi-benefit and multi-functional products
Skincare is linked with self-care rituals, and individuals are that offer features such as anti-aging,
proactively looking to preserve healthy skin over time instead of exfoliation and hydration, and also can be used
fixing issues. As such, skincare is more of a priority than makeup. across categories (e.g., skincare and lip care)
SELECT ON-TREND SKINCARE BRANDS
Page 34CLEAN PRODUCTS
SHOPPERS ARE SEEKING OUT PRODUCTS THAT ARE CLEAN, ETHICAL AND COMMUNITY-FOCUSED
The clean movement, which was already quite dynamic, will
continue its rapid trajectory. Safety, proven ethical sourcing and
transparency of ingredients will be even more sought after as the
move from “clean” to “conscious” beauty evolves.
+11% Clean beauty sales increase y-o-y
The DNA of clean beauty is safety – safety resonates with and
comforts consumers, especially now. Consumers are willing to pay
(14%) Prestige beauty sales decline y-o-y
more for clean products.
Clean skincare grew nearly 30% in 2019, while prestige skincare PROMINENT CLEAN BEAUTY BRANDS
grew about 5% per NPD.
Clean originally gained momentum in the skincare category, but
has now expanded to include offerings in the color, haircare and
fragrance categories – improved technology and formulations have
allowed for products to be both clean and efficacious.
Major retailers have started capitalizing on this trend as well. On
June 16th, both Ulta and Sephora announced partnerships with
Clean beauty companies. Ulta will be bringing eight brands from
Credo, an organic beauty retailer, into 100 Ulta Beauty stores and
on Ulta.com this fall. Sephora announced an in-store and online
pop-up event with Beautycounter, a direct-marketing Clean beauty
company that previously relied on independent salespeople.
Products need to go beyond Clean – consumers also care about
vegan, organic, cruelty-free ingredients and manufacturing
processes – it’s not enough to claim these benefits – they must be
substantiated as well.
_____________________
Source: Mintel. Page 35PERSONALIZED BEAUTY
NOT PURSUING PERSONALIZED BEAUTY IS LEAVING A SIGNIFICANT GROWTH OPPORTUNITY ON THE TABLE
Product personalization as a trend had been growing BROAD OPPORTUNITY ACROSS SERVICES AND PRICE POINTS
before COVID-19 began and primarily focused on
haircare and skincare. Premium
Typically using quiz-based methodologies (largely
online), brands create custom formulations based on
the end user’s specific needs and preferences.
The scope and reach of custom formulations is evolving
as the demand for such products increases.
Playing to convenience and efficacy, hyper-personalized Entry
formulations have the potential to take share from Level
traditional beauty products.
Limited Data Highly Personalized
A NATURAL EVOLUTION OF MAJOR TRENDS
Customized Consumers increasingly seek personalization in their daily experiences, shifting away from “one size fits all”
Experiences products with broad (and sometimes undesirable) benefits.
E-commerce Benefiting from growing demands for convenience and instant information,
online and digital channels have been taking share from other channels,
Growth providing the ideal platform for personalized beauty solutions.
Scientific Advances in human anatomy and genomic science have
enabled beauty solutions to be tailored to an individual’s
Advancements characteristics or genotype to increase efficacy.
The Quantified Underpinning these trends is the
movement toward quantifying and
Consumer tracking personal characteristics.
_____________________
Source: L.E.K.. Page 36BEAUTY FOCUSED ON BIPOC DEMOGRAPHIC
INCREASING DIVERSITY IN THE U.S. PRESENTS AN OPPORTUNITY FOR BRANDS WITH THE RIGHT MESSAGE AND FEATURES
Multicultural beauty in America is becoming progressively important as more and more brands are developing products to fit the unique
interests and needs of multicultural consumers. The increasing diversity of the country bodes well for the beauty industry.
Current events have resulted in brands reviewing their diversity efforts. Social media has created a platform for consumers to criticize
brands that fail to be inclusive and diverse in product offerings, branding and company leadership. Additionally, consumers are eager to
support brands that are created by diverse founders, curating lists of these brands and sharing them widely. Authenticity is key, and “tone
deaf” messaging can backfire and permanently reduce consumer enthusiasm.
Brands engaging diverse consumers are rewarded. Hispanic and Black women tend to be more engaged with beauty trends and more
experimental in their beauty routines. Growing incomes and consumer interest creates opportunities for brands to engage in new ways.
When it comes to the latest beauty trends, America’s multicultural women seem to be the most enthusiastic. Two thirds of Hispanic
women (66%) say they create complex makeup looks, compared to 51% of U.S. women overall. Hispanic women are also more interested
in multi-purpose beauty products (49% vs 41% women overall). Meanwhile, Black women are more likely to be interested in trends
surrounding natural beauty products (64% vs 45% women overall).
CHANGING AMERICAN DEMOGRAPHICS GROWTH OUTPACING GENERAL CATEGORY
6% 2% 9% 2% Ethnic Haircare U.S. Sales ($M)
14% 13% $972
$774
2020 2050 47%
18% 60% 29%
White Hispanic Black Asian Other 2014 2019
_____________________
Sources: Mintel, Kline Research and the U.S. Census Bureau. Page 37You can also read
